VZCZCXRO7413
RR RUEHFK RUEHNAG RUEHNH
DE RUEHKO #4689/01 2780535
ZNR UUUUU ZZH
R 050535Z OCT 07
FM AMEMBASSY TOKYO
TO RUEHC/SECSTATE WASHDC 8305
RUEAIIA/CIA WASHDC
INFO RUEHFR/AMEMBASSY PARIS 5768
RUEHFK/AMCONSUL FUKUOKA 3577
RUEHNAG/AMCONSUL NAGOYA 2489
RUEHNH/AMCONSUL NAHA 5988
RUEHOK/AMCONSUL OSAKA KOBE 7236
RUCPDOC/USDOC WASHDC

UNCLAS SECTION 01 OF 09 TOKYO 004689 
 
SIPDIS 
 
PARIS PLEASE PASS TO USOECD 
STATE PLEASE PASS TO USTR 
 
SIPDIS 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ETRD ECON JA ZO EAGR
SUBJECT: The Japan Economic Scope--October 4, 2007 
 
¶1. (U) This cable contains the Japan Economic Scope from 
October 4, 2007. 
 
¶2. (SBU) Table of Contents 
 
Reform 
¶3.  CPRR, CEFP No Longer "Wheels of Change" Under Fukuda 
Administration 
¶4.  What Kansai Business Executives Expect of the Fukuda 
Cabinet 
¶5.  PM Fukuda's Strong Initial Polls, "Thin" Policy Speech 
¶6.  JFTC Proposes Amendments to Antimonopoly Act 
 
Foreign Relations 
¶7.  Hokkaido Hoping for Influx of Taiwanese Drivers Following 
Reciprocal Agreement 
¶8.  Growing Foreign Population in Aichi Creates New Problems 
 
Business 
¶9.  Bank Sales of Insurance Debate Heats Up 
¶10. Japan Post Privatization Starts Well; Regulators and 
Executives Focused on Compliance 
¶11. Citigroup to Conduct Japan's First Triangular Merger 
¶12. Tankan Survey Reveals Standstill in Manufactures' Business 
Sentiment 
¶13. Regional Minimum Wages Set to Rise 
¶14. Core Consumer Prices Down 0.1% in August, 7th Consecutive 
Monthly Drop 
 
The Beef with Beef 
¶15. Beef: Japan Pressing United States to Accept 30 Months 16. 
Article Blasts GOJ Blanket Testing Policies on BSE 
 
Safety and Security 
¶16. Japanese Companies Air Concerns about 100% Scanning Mandate 
 
¶17. Japan's Earthquake Warning System Kicks off With a Moving 
Start 
¶18. Police Respond to Alleged Terrorist Threat on Tokyo Subway 
¶19. Japan Plans to Start Fingerprinting, Photographing 
Foreigners 
 
Kansai International Airport 
¶20. Good Start of KIX 2nd Runway 
¶21. Subsidy for Cargo Flights at KIX 
 
Sporting News 
¶22. Matsuzaka Brilliant As Red Sox Clinch AL East 
 
¶23. This Week's Cables 
¶24. MOFA Actions 
 
------ 
REFORM 
------ 
 
¶3.  (SBU) CPRR, CEFP No Longer "Wheels of Change" Under Fukuda 
Administration 
--------------------------------------------- ---- 
 
Japan's new Prime Minister, Yasuo Fukuda, is concentrating on 
consolidating his political position and has placed reform on 
hold for the foreseeable future, Japanese officials told us. 
Fukuda, while "reform-oriented," will take a more measured and 
incremental approach to reform than his immediate predecessors. 
The Council for the Promotion of Regulatory Reform (CPRR) and 
the Council for Economic and Fiscal Policy (CEFP), both 
powerful change agents under former Prime Minister Koizumi, are 
no longer the "wheels of change" under Fukuda, they lamented. 
Please see Tokyo 4659.  (ECON: Sally Behrhorst/Eriko Marks) 
 
¶4.  (SBU) What Kansai Business Executives Expect of the Fukuda 
Cabinet 
--------------------------------------------- ---- 
 
Osaka Chamber of Commerce and Industry Chairman Akio Nomura 
commented on the new cabinet in the Kansai edition of the 
Nikkei Shimbun that it seems to be more stable than the Abe 
Cabinet, and he expects PM Fukuda to keep economic structure 
reform for sustainable economic growth.  As a business leader 
from the Kansai, he would like Fukuda to look at ways to 
support Small and Medium Enterprises (SMEs) in many parts of 
 
TOKYO 00004689  002 OF 009 
 
 
Japan, especially the Kansai. 
 
Kansai Keizai Doyukai Co-chairman Norihiko Saito said that 
reform of the pension system and the civil service are two 
urgent tasks facing the new administration.  He expects PM 
Fukuda to speed up introducing "doshusei" or local government 
consolidation and promote decentralization, which he said are 
necessary to activate local businesses. 
 
Many business people, including other local economic 
organizations such as the Kansai Economic Federation, comment 
that Fukuda has not paid attention to any other area except for 
the Tokyo Metropolitan Area in his career, but they hope Fukuda 
will expand his perspective to encompass the entire country as 
Prime Minister.  (Osaka-Kobe: Phil Cummings/Naomi Shibui) 
 
¶5.  (SBU) PM Fukuda's Strong Initial Polls, "Thin" Policy 
Speech 
--------------------------------------------- ---- 
 
Marking a considerable improvement for the Liberal Democratic 
Party (LDP), Prime Minister Fukuda's first polling numbers 
indicate a popular support rate over 50 percent.  Former PM 
Abe's numbers had bounced around 30 percent in July and hit a 
low in the mid-20s in August.  Fukuda's initial support rate, 
while lower than what former PMs Koizumi and Abe enjoyed at the 
start of their administrations, is relatively high by Japanese 
historical standards. 
 
Having projected an image of stability and competence to the 
electorate, PM Fukuda gave his first policy speech to both 
houses of the Diet on October 1.  The speech opened with 
outreach to the minority Democratic Party of Japan (DPJ) and 
focused largely on voters' domestic pocketbook issues. 
 
Fukuda continues to straddle the question of structural reform, 
promising to pursue economic reform and stable growth while 
addressing reform's side-effects, including regional 
disparities and the difficulties faced by small and medium- 
sized businesses.  He called for discussion of comprehensive 
tax reform, an overhaul of the pension system, and improvements 
in rural medical care, and he pledged to use the G8 Summit in 
Lake Toya in July 2008 to further PM Abe's program of halving 
greenhouse gasses by 2050. 
 
The speech garnered mixed reviews.  Some in the media described 
PM Fukuda's agenda as "insta-policy" -- a mere continuation of 
PM Abe's program -- and criticized Fukuda's presentation as 
"lacking leadership."  Others, including one opposition Diet 
member, told us the speech was "thin" on substance and details. 
 
A translation of the complete speech is attached below. 
Further information is available in Tokyo 4556 (economic 
agenda), 4562 (polling), and 4653 (policy speech).  (ECON: Marc 
Dillard) 
 
¶6.  (U) FTC Proposes Amendments to Antimonopoly Act 
--------------------------------------------- ---- 
 
At a September 27 press conference, Japan Fair Trade Commission 
(JFTC) Chairman Kazuhiko Takeshima announced that the JFTC 
would seek further amendments to the Antimonoply Act (AMA), 
Japan's main competition law, in the 2008 regular Diet session. 
 
JFTC's proposals, which reportedly will go before the Diet in 
March next year, would extend the statute of limitations on AMA 
violations from the current level of three years to a "level 
equivalent to that of the United States" (five years). The 
amendments would also expand the scope of the AMA to include 
"exclusionary private monopolization" (i.e., actions by a firm 
aimed at barring new entrants to a market) as behavior subject 
to JFTC surcharges. 
 
Takeshima indicated, however, that the JFTC would refrain from 
proposing an increase in surcharge rates as more time was 
needed to review the effects of higher surcharge rates 
initiated only in 2006.  (ECON:  Chris Wurzel) 
 
----------------- 
FOREIGN RELATIONS 
----------------- 
 
 
TOKYO 00004689  003 OF 009 
 
 
¶7.  (U) Hokkaido Hoping for Influx of Taiwanese Drivers 
Following Reciprocal Agreement 
--------------------------------------------- ---- 
 
On September 19, a reciprocal agreement went into effect 
between Japan and Taiwan allowing travelers from each place to 
drive on the other's roads with existing licenses. Prior to the 
agreement, Japanese travelers in Taiwan and Taiwanese travelers 
in Japan had to first obtain local licenses before driving 
because Taiwan is not a party to the international driver 
license treaty. 
 
Hokkaido prefectural officials were among those who strongly 
lobbied the Japanese government to sign the agreement with 
Taiwan. The prefecture hopes it will be one of the primary 
beneficiaries of the driving agreement. In 2006, 270,000 
Taiwanese visited Hokkaido, nearly 45 percent of the 
prefecture's total foreign tourists. 
 
In early September, Hokkaido Governor Harumi Takahashi made a 
promotional visit to Taiwan during which she distributed 
prefectural government-produced Chinese language tourism guides 
that included Hokkaido roadmaps and Japanese driving rules. 
Not everyone in Hokkaido, however, is as eager to receive 
Taiwanese drivers. Some rental car company representatives 
express concern there will be an increase in auto accidents 
with Taiwanese unaccustomed to driving on the left side of the 
road. They also worry they will not have a sufficient number of 
Chinese speaking employees to assist Taiwanese drivers. 
(Sapporo: Ian Hillman/Yumi Baba) 
 
¶8.  (U) Growing Foreign Population in Aichi Creates New 
Problems 
--------------------------------------------- ---- 
 
Aichi Prefecture International Division Executive Director 
Nakagami told Consulate Nagoya October 2 that dealing with the 
growing population of Nikkei (Japanese-descended) foreigners, 
mainly from Brazil and Peru, is one of the biggest issues the 
Division faces. 
 
Nakagami said in certain cities, such as Nishio City and Chiryu 
City where many Latin Americans are engaged in auto parts 
manufacturing, more than 50 percent of new elementary school 
students are children of Nikkei workers. At some kindergartens, 
more than 70 percent of students are non-Japanese. 
Since most of these foreign students do not speak Japanese (at 
least at first) many Japanese parents are worried about 
lowering educational standards, and, according to Nakagami, 
many teachers have become "neurotic and depressed." 
 
Additionally, because of differing lifestyles, cases of 
friction between Latin American Nikkei workers and their 
Japanese apartment neighbors have grown. 
 
Nakagami said the real problem is that there is no Japanese law 
for those foreign workers and their family members on important 
items such as minimum wage, overtime work and health insurance. 
Each ministry has different interests and ideas, and there are 
no clear guidelines.  Therefore it is local governments, 
particularly municipal governments, which have to face the real 
challenges. 
 
There are approximately 75,000 Brazilians, 42,000 South and 
North Koreans, 36,000 Chinese, 21,000 Filipinos and 7.900 
Peruvians in Aichi prefecture.  In 2006, the total foreign 
population in Aichi was 208,514, up by more than 32 percent in 
the past four years. 
 
In 2007, Aichi is set to pass Osaka as having the second 
highest prefectural foreign population in Japan.  (Nagoya: 
Tamiki Mizuno) 
 
-------- 
BUSINESS 
-------- 
 
¶9.  (SBU) Bank Sales of Insurance Debate Heats Up 
--------------------------------------------- ---- 
 
Following the Financial Services Agency's (FSA) September 18 
recommendation to the Financial Systems Council that bank sales 
 
TOKYO 00004689  004 OF 009 
 
 
of insurance ought to be liberalized fully in December, heavy 
lobbying of Diet members has commenced. 
 
At least fourteen groups, ranging from insurance and banking 
associations to unions, consumer advocates, and the American 
Chamber of Commerce in Japan (ACCJ), have appeared before a 
Liberal Democratic Party (LDP) banking and finance committee. 
Advocates have also appealed directly to LDP and opposition 
Democratic Party of Japan (DPJ) Diet members. 
 
Insiders tell us the anti-deregulation groups have moved away 
from consumer protection issues and are stressing that 
liberalization would bring job losses and instability -- 
especially in rural areas -- as insurance agents would face 
stiff competition from banks.   In doing so, they are sounding 
fearful themes for those LDP members who believe the side- 
effects of reform drove rural voters to abandon the party in 
July's Upper House election. 
 
A decision on whether to liberalize is expected October 22. 
(ECON: Marc Dillard) 
 
¶10.  (SBU) Japan Post Privatization Starts Well; Regulators and 
Executives Focused on Compliance 
--------------------------------------------- ---- 
 
People lined up outside post offices October 1 to snap up 
stamps commemorating the start of Japan Post's ten-year 
privatization process.  Media coverage of the transition was 
generally positive, and minor transitional glitches appear to 
have been limited to internal operations and did not affect 
customer service. 
 
Industry observers have told us they were pleased by 
regulators' public statements that the new Japan Post banking 
and insurance entities would be subject to the same treatment 
as private companies.  They similarly welcomed Financial 
Services Agency Minister Watanabe's expression of concern about 
Japan Post's past errors in compliance and privacy protection. 
Acknowledging the challenges the group faces, Japan Post 
Holding Company President Nishikawa stated he is currently 
spending seventy percent of his time on compliance issues. 
(ECON: Marc Dillard) 
 
¶11.  (U)Citigroup to Conduct Japan's First Triangular Merger -- 
--------------------------------------------- -- 
 
U.S. bank Citigroup announced on October 2 that it will make 
Nikko Cordial Group, Japan's third largest brokerage, a wholly 
owned subsidiary through a so-called triangular merger scheme. 
The transaction value of the share exchange is estimated 
approximately $ 4.6 billion.  The transaction is expected to 
occur in January 2008. As a result, Citigroup will own 100 
percent of Nikko Cordial's shares through its Japanese 
subsidiary Citigroup Japan Holdings Ltd. 
 
The triangular merger allows Citigroup to offer its own shares, 
instead of cash, to the shareholders of the Nikko Cordial as 
merger considerations.  U.S. and European governments have 
urged GOJ to permit the use of triangular mergers as an 
essential instrument to facilitate cross-border merger and 
acquisitions (M&As) and eventually to accelerate foreign direct 
investment in Japan. 
 
The scheme became available in May 2007 under the new Corporate 
Law, after a one year postponement due to strong opposition 
from Japan's business community that fears "hostile" takeovers 
by foreign firms. 
 
The Citi-Nikko deal is the first triangular merger, coming five 
months after the implementation of the law allowing the scheme. 
The deal differs from the sort of case that worried Japanese 
business -- that is, when a traditional blue-chip manufacturer 
is acquired by foreign investors in a hostile takeover. 
Citigroup and Nikko have had an alliance for a decade, and 
Citigroup already holds 68 percent of Nikko shares.  (ECON: 
Satoshi Hattori) 
 
¶12.  (U) Tankan Survey Reveals Standstill in Manufactures' 
Business Sentiment 
--------------------------------------------- ---- 
 
 
TOKYO 00004689  005 OF 009 
 
 
The Bank of Japan's quarterly tankan survey of business 
sentiment, a closely watched business cycle indicator and a 
principal input in the central bank's monetary policy 
deliberations, found no change in the business sentiment of 
large manufacturers. 
 
The survey revealed, however, a very modest deterioration in 
business sentiment among other categories -- large non- 
manufacturers, mid-sized and small firms -- largely reflecting 
concerns about high crude oil prices and the strengthening yen. 
The survey's "headline" business sentiment diffusion index (DI) 
for large manufacturers was slightly above market expectations. 
 
The BOJ Policy Board is scheduled to hold its first post- 
"tankan" meeting October 10 and 11.  Many market observers are 
expecting that the BOJ will maintain the present monetary 
policy stance for the time being. Please see attached document 
for more details.  (FINATT:  Shuya Sakurai) 
 
¶13.  (SBU) Regional Minimum Wages Set to Rise 
--------------------------------------------- ---- 
 
Regional minimum wages, drafted by the Regional Minimum Wage 
Councils in each prefecture, will rise this month between seven 
and 20 yen per hour, according to the Ministry of Health, Labor, 
and Welfare (MHLW). 
 
While the exact amount will vary by prefecture, the new average 
minimum wage will be 687 yen.  The Labor Bureau of each 
prefecture will make official announcements late in October. 
Twenty-two prefectures opted for an increase that exceeded the 
target the Central Minimum Wage Council set in August.   Half 
of those prefectures are suffering from the so called "reverse 
phenomenon," whereby full-time work at the minimum wage is 
lower than the social welfare benefit, leading to a 
disincentive to work. 
 
The changes to the regional minimum wage will correct the 
"reverse phenomenon" in only two of the prefectures, however. 
(ECON: Ai Kaneko) 
 
¶14.  (U) Core Consumer Prices Down 0.1% in August, 7th 
Consecutive Monthly Drop 
--------------------------------------------- ---- 
 
Japan's nationwide core CPI, which excludes perishable food 
items, fell 0.1 percent in August from the year before, the 
same rate of decline as in each of the previous four months and 
the seventh consecutive monthly decline, the Ministry of 
Internal Affairs and Communications (MIC) announced September 
¶28. 
 
This result was in line with the market consensus forecast. 
Overall CPI was down 0.2 percent in August from a year earlier. 
MIC also provides an alternative "core" index for nationwide 
consumer prices that excludes volatile items -- i.e. energy and 
all food prices (except alcoholic beverages), a measure that is 
closer to more commonly used in international measures of 
underlying inflation. 
 
This index also declined again, with an August year on year 
decline of 0.2 percent.  The alternative core CPI has 
fluctuated in the -0.2 percent to -0.8 percent range since 
November 2003.  As a leading indicator of national CPI, 
preliminary Tokyo core CPI was down 0.1 percent in September 
from the year before.  (FINATT:  Shuya Sakurai) 
 
¶15.  (U) CEFP's Professor Ito Calls for a Japanese Sovereign 
Wealth Fund 
--------------------------------------------- ---- 
 
In a recent Nikkei editorial, influential Council on Economic 
and Fiscal Policy private sector member Professor Takatoshi Ito 
proposed the establishment of a Japanese sovereign wealth fund 
(SWF), to be generated from interest earnings on Japan's 
immense official foreign reserve assets. 
 
In order to gain greater returns, Ito also broached the 
possibility of transferring the "excess" portion of Japan's 
foreign reserve holdings into an SWF. 
 
Ito, a professor at Tokyo University, stated that if the 
 
TOKYO 00004689  006 OF 009 
 
 
current $30 billion in annual interest earnings from Japan's 
foreign reserve assets were to be transferred to an SWF, the 
fund would reach $100 billion in about three and a half years, 
roughly half the size of China's new SWF, China Investment 
Corporation. 
 
At present, Japan's official foreign reserves are managed by 
the Foreign Exchange Funds Special Account (FEFSA). Ito 
indicated that the FEFSA is faced with two risks: interest rate 
and foreign exchange risks. This is because both assets of the 
FEFSA and its interest earnings are denominated in U.S. dollars, 
while both liabilities and its interest payments are 
denominated in yen. 
 
Interest earnings are booked in the FEFSA as dollar-denominated 
assets, while MOF is required to issue equivalent amounts of 
yen-denominated financing bills, in order to make the account 
balance.  Ito claims that at least $300 billion, or roughly one 
third of Japan's official foreign reserves, is "excessive," 
given the standard rule-of-thumb for determining the 
appropriate level of foreign reserve holdings (three months' 
worth of import coverage, and one year's short-term foreign 
debt). 
 
Finally, Ito stressed that the GOJ should entrust SWF's 
management to private financial institutions by clarifying the 
principles of fund management.  (FINATT:  Shuya Sakurai) 
 
------------------ 
THE BEEF WITH BEEF 
------------------ 
 
¶16.  (SBU) Beef: Japan Pressing United States to Accept 30 
Months 
--------------------------------------------- ---- 
 
MOFA officials in separate meetings with Embassy officials on 
September 28 and October 2 indicated that the government would 
be prepared to recommend a liberalization of beef trade but 
that is was not ready to adopt international standards set by 
the World Animal Health Organization (OIE). 
 
Japan is pressing the United States to accept a trade regime 
for beef short of the OIE standard set in May.  The OIE ruled 
that U.S. beef should not be subject to restrictions on the age 
of cows used in production, while Japan is offering allowing 
beef from cows up to 30 months old. 
 
It is a familiar position, which the Japanese government 
conveyed to the USG and to the press after BSE expert-level 
meetings over the summer.  The United States position continues 
to be that Japan should adopt international standards based on 
science and allow U.S. beef without age restrictions. 
 
Under the Japanese system, the government, responsible for risk 
management, must convey a recommendation to the FSC, which is 
responsible for risk assessment.  Japan is pressing the United 
States to accept a compromise as soon as possible, arguing the 
window for easing restrictions is closing.    (Econ: Nicholas 
Hill) 
 
¶17.  (SBU) Article Blasts GOJ Blanket Testing Policies on BSE - 
--------------------------------------------- --- 
 
"Japan is the only country in the world that is obsessed with 
the article of faith....that BSE inspection ensures beef 
safety," wrote Masami Kojima in the October 2 Mainichi.  The 
author takes to task the 100 percent blanket testing policies 
that the government launched in 2001 to reassure the Japanese 
public that beef on the store shelves was safe. 
 
The article describes how blanket cattle inspection is not 
correctly understood in Japan and has obscured the facts about 
the BSE problem.  When BSE was first discovered in Japan, the 
Agriculture Minister said at the time that testing was the 
"strictest...method in the world" and would ensure safety.  The 
public accepted the assurance and has come to embrace 100 
percent testing. 
 
The problem, according to Kojima, in a view that is already 
widely understood in the West, is that testing is largely 
ineffective in young animals and unreliable in older animals. 
 
TOKYO 00004689  007 OF 009 
 
 
Meanwhile, according to Kojima, far more effective means of 
minimizing risk of exposure to BSE are neglected in Japan. 
Even as the government has sought to phase out 100 percent 
testing, the public has resisted.  (ECON:  Nicholas Hill) 
 
------------------- 
SAFETY AND SECURITY 
------------------- 
 
¶18.  (SBU) Japanese Companies Air Concerns about 100% Scanning 
Mandate 
--------------------------------------------- ---- 
 
This week the Japanese Automobile Manufacture's Association, 
American President Shipping Lines and the Japanese government 
shared their concerns with various levels of the US government 
and US Embassy concerning implementation of the law to scan 100 
percent of US-bound cargo. 
 
During a lunch with MOFA officials October 4, DHS and Econoff 
worked to dispel the opposition to the legislation.  Most 
concerns are tied in with time and costs.  While there will be 
costs, it is possible that the scanning can be done with 
sufficient speed that it will not impede the smooth flow of 
commodities, embassy officials explained. 
 
Japanese officials were greatly relieved to learn that the 
smooth flow of trade is also a U.S. priority.  Please see Tokyo 
4660 for more information.  (ECON:  Charlie Crouch) 
 
¶19.  (U) Japan's Earthquake Warning System Kicks off With a 
Moving Start 
--------------------------------------------- ---- 
 
A 5.1 magnitude earthquake jolted Tokyo and surrounding areas 
early Monday, injuring one woman, according to Japan 
Meteorological Agency reported. 
 
The quake hit the same day the Japanese government launched a 
system that provides early warning of major earthquakes as well 
as their anticipated intensities to help the public better cope 
with significant tremors, according to a Nikkei newspaper 
article.  (ECON:  Charlie Crouch) 
 
¶20.  (U) Police Respond to Alleged Terrorist Threat on Tokyo 
Subway 
--------------------------------------------- ---- 
 
According to the associated press, Tokyo subway's security was 
tightened after receiving a telephoned warning of an alleged 
terrorist attack.  The caller reportedly told authorities that 
a Pakistani terrorist group was hiding in central Tokyo and 
planned to conduct suicide attacks on the subway by the morning 
of September 28. 
 
The caller apparently demanded about $2 million in return for 
the information.  Tokyo Metro found no suspicious objects or 
individuals and lowered its alert level to normal Friday 
afternoon. (ECON:  Junko Nagahama) 
 
¶21.  (U) Japan Plans to Start Fingerprinting, Photographing 
Foreigners 
--------------------------------------------- ---- 
 
The government will approve a draft ordinance stipulating that 
a mandatory fingerprinting and photographing of visitors aged 
16 or older will enter into force on Nov. 20, according to an 
October 4 Japan Today newspaper article. 
 
The revised Immigration Control and Refugee Recognition Law 
incorporating such a measure was enacted in May last year in a 
bid to block the entry into Japan of individuals designated as 
terrorists by the justice minister. (ECON: Eriko Marks) 
 
---------------------------- 
KANSAI INTERNATIONAL AIRPORT 
---------------------------- 
 
¶22.  (SBU) Good Start of KIX 2nd Runway 
--------------------------------------------- ---- 
 
Kansai International Airport Co., Ltd. (KIAC) announced this 
 
TOKYO 00004689  008 OF 009 
 
 
week that the airport had 7,040 international flights in August 
2007, including flights using the new second runway, a monthly 
record. 
 
Analysts gave credit for the surges to increased cargo flights 
and expanded China routes allowed by the second runway.  In 
addition, Duty Free Shop (DFS) sales at the airport also 
reached a record two billion yen ($17.3 million).  By expanding 
China routes at KIX, the airport has rapidly increased the 
number of Chinese travelers shopping at its DFS outlets. 
 
A KIAC official said that it is good start for the second 
runway, but that the company had hoped for an even stronger 
kickoff.  (Osaka-Kobe: Phil Cummings/Naomi Shibui) 
 
¶23.  (SBU) Subsidy for Cargo Flights at KIX 
--------------------------------------------- ---- 
 
Osaka Governor Fusae Ohta announced this week that the Kansai 
International Airport (KIX) promotion council, consisting of 
local governments and economic organizations in western Japan, 
would start to provide a subsidy from late October for new 
cargo flights operating at KIX. 
 
The subsidies are a continuation of financial support that the 
council has already offered airlines for their passenger 
flights since 2005. 
 
The current subsidy for passenger flights is provided for two 
years, up to 60 million yen ($517,000) for the first year, and 
up to 30 million yen ($258,600) for the second year. 
 
In addition, air carriers that begin new operations at KIX will 
get another 10 million yen ($86,200).  The amounts depend on 
the scale of aircraft and the number of operation at KIX.  The 
Council has already provided total 200 million yen total for 13 
carriers.  The amount of additional subsidies for cargo flights 
is still under discussion by the council. 
 
Governor Ohta's strong support for KIX, including construction 
of the second runway in the face of GOJ opposition, is one of 
the few areas which the Osaka business community has given Ohta 
high marks.   (Osaka-Kobe: Phil Cummings/Naomi Shibui) 
 
------------- 
SPORTING NEWS 
------------- 
 
¶24.  (U) Matsuzaka Brilliant As Red Sox Clinch AL East (U) 
Japanese import Daisuke Matsuzaka helped clinch the AL East 
title for the Boston Red Sox on September 28, allowing two runs 
over eight innings in a 5-2 victory over the Minnesota Twins. 
A nationwide Japanese audience viewed the performance on 
Saturday morning on NHK.  The media provided exhaustive 
coverage -- including of the champagne shower that Matsuzaka and 
his Japanese teammate, Hideki Okajima, participated in after 
Fenway Park contest concluded. 
The Red Sox had to wait until after the New York Yankees blew a 
three run lead in Baltimore in the 9th inning, eventually 
losing an hour after the Red Sox game concluded. (Econ: 
Nicholas Hill) 
 
¶25.  (SBU) THIS WEEK'S CABLES 
4661 PM Fukuda Plans No Shift in Japan Policy on Northern 
Territories 
4660 Japanese Government Raises Concerns Over New U.S. Law 
Mandating 100% Cargo Scanning 
4659 CPRR, CEFP No Longer "Wheels of Reform" Under Fukuda 
Administration 
4658 Going Postal:  Introducing the World's Largest Bank 
4656 A/S Hill's Meeting with Japan PM Advisor on Abductions 
Nakayama 
4655 A/S Hill's Meeting with Japan VFM Yachi 
4636 Japanese Foreign Minister Yachi on Possible OEF Extension 
4635 PM Fukuda Aims for Middle Ground in First Foreign Policy 
Speech 
4620 GOJ Responds to MTCR Emerging Technologies 
4619 GOJ Export controls Agree with  USG On MCTR Brokers 
4562 Fukuda Off to a Good Start 
4561 Japan to Play a Passive Role in Community of Democracies 
4559 Japanese Readout of Iraq and Afghanistan High-Level 
Meetings in New York 
 
TOKYO 00004689  009 OF 009 
 
 
4556 Japan Economic Agenda:  Fukuda Starts with Domestic 
Policies 
4555 $3 Trillion for Your Thoughts:  Japan Post Privatization 
Set to Begin October 1 
Back to Top 
 
¶26.  (U) MOFA ACTIONS 
The 5th meeting between Japan and Vietnam on EPA negotiations 
will be held in Vietnam, from October 2 to 4.  Click here for 
more information. 
 
¶27.  (U) This SENSITIVE BUT UNCLASSIFIED e-newsletter from U.S. 
Embassy Tokyo's Economic Section, with contributions from the 
consulates, is for internal USG use only.  Please do not 
forward in whole or in part outside of the government.  The 
Scope is edited this week by Charlie Crouch 
(CrouchCA@state.gov) and Joy Progar (ProgarJ@state.gov) 
 
¶28.  (U) Please visit the Tokyo Econ Intranet webpage for back 
issues of the Scope.  Apologies, this option is only available 
to State users.  Please contact Joy Progar if you are from a 
different agency and are interested in a back issue. 
DONOVAN